Sunday, March 20, 2011

Bombs Away

On Wednesday, Secretary of State Hillary Clinton had a long talk with President Obama about the situation in Libya. Obama, who had until this point been against any direct military involvement, was told by Clinton that if Colonel Qaddafi were to win the war {which was indeed swinging decisively in his favor} there might be a massacre and tribal war on an unprecedented scale, perhaps comparable to Rwanda. There was talk of mass torture and rape already. It was enough. On Thursday, Obama relented and, with US pressure, the UN Security Council approved a measure for a "No Fly Zone" in the skies above Libya, with the added stipulations that Qaddafi's forces retreat from a number of cities he had just recently took, and that he provide food and medicine to all Libyans. It was known that Qaddafi could not possibly comply with these dictats, nevermind his willingness to do so.

Colonel Muammar Qaddafi had always been crazy. He exudes it; even embraces it. When he goes travelling to foreign nations, he arrives with a bodyguard unit made up of young virgins toting automatic rifles. Some of his dresses would make Elton John jealous. Worse, he's as brutal and greedy as he is crazy: it's estimated that in the forty or so year's he's ruled Libya, he has amassed a fortune {in foreign banks of course}in the neighborhood of $20 billion. His children travel the world like playboys, spending lavishly on anything they want-- one son even hired Beyonce to perform a few songs for his birthday for a cool $1 million. He has a few extremely nice looking Ukrainian nurses attending to his every need. When he travels to African nations, he lets it be known that he's to be addressed as the "King of Kings". Any opposition to this mass squandering of a nation's wealth is immediately dealt with by a particularly vicious police force he maintains. He keeps a paramilitary force, some of which are under the personal command of his sons, which is actually stronger than the country's army.

Unfortunately for the King of Kings, the world's financial crisis has come home to bite him. Once the revolutions in Egypt and Tunisia were successful, and because the vast majority of Libyans are destitute, bereft of hope and completely disenfranchised, it was a given that the revolutionary fever sweeping the Islamic World would come to Libya. It was also a given that Qaddafi would use his police and militia forces to suppress this. What was different here is that the crazy Colonel did'nt recognize when his time had come. He was offered by the West multiple times the opportunity to simply walk away; there was talk of him moving to France only a week or so ago. With some fast military help from friends abroad-- Syria primarily-- the Colonel began to turn the tide back into his favor. Al-Zawiya in the Western part of the nation and then Brega and Ras-Lanuf in the east fell back under Qaddafi's paramilitaries. By Thursday, the situation had essentially become hopeless for the rebels, who begged and pleaded with western journalists for air intervention. Without this aid, there is little doubt that Qaddafi's forces would've prevailed.

In the end, my guess is that many Qaddafi loyalists will simply melt away and the rebels will begin to advance yet again. There was a French airstrike on a column of pro-Qaddafi militia on a road near the western city of Benghazi; it was later discovered that many of these soldiers were attempting to throw away their uniforms and simply melt away. This will be over in two weeks is my guess. As for the King of Kings, he will meet the same fate as Romania's late dictator, Nicolae Ceaucescu, who was executed by firing squad after he lost power. Some have opined that one of his own children will do the deed in order to secure their own safety abroad.

For forty years, Qaddafi essentially looted the country six ways from sunday, leaving the people destitute. The people of Libya were never given a chance to enjoy the wealth that should've been rightfully theirs and were denied any form of expression. The West, including the US, recognized Qaddafi's regime no strings attached, so long as the oil flowed and as long as western oil companies profited from exploration and production. Italy under PM Berlusconi was particularly guilty here. Libya is not the only dictator we support; Saudi Arabia is the primary one, and they too are brutal and corrupt-- but at this time they have enough wealth to spread around to make the pain of no democracy somewhat bearable.

My question is-- when do we as a nation actually begin to stand by our own principles and support the people's right to democracy and freedom ? Had we done this with Iran in the 1970s, Iran might not be our enemy. Al-Qaida might not exist. We are still making the same mistake as we speak. It's high time we espouse democracy and send the Sheiks and Kings of these corrupt nations down the river. What are we afraid of ? Ultimately, any new regime in these nations will have to sell the oil; it's not like we will do without. Obama took a big step forward in this direction when he failed to support Mubarak, much to the anger of the Saudi King. This week's intervention on behalf of the Libyan rebels is another step forward in this direction. Doing it without putting troops on the ground is another good idea. It's high time we as a nation put democracy first, even if this means the fall of the Saud dynasty and expulsion of our base in Bahrain. In the long run, the good will engendered by these actions will be far more beneficial for us-- and it's the right thing to do.

Sunday, March 13, 2011


First and foremost, my heart sincerely goes out to any of the people affected by this catastrophe.. and make no mistake.. this one rates pretty high up on the scale. So far (mercifully) this has not killed too many people; it's nothing like the earthquake that flattened Haiti in terms of human loss. The people and government of Japan train incessantly for just such an occurance; the only reason Japan did not become Haiti on steroids was the quality of design and construction of buildings in Japan. Had this been 1911 instead of 2011, the dead would've been in the hundreds of thousands.

But because it is 2011, nuclear power is providing nearly 2/3rds of Japan's electrical needs. Cheap and efficient-- especially for a nation with few remaining natural resources-- nuclear energy was rightly embraced by Japan beginning in the 1960's. It's fueled their economic miracle. But building these plants in a nation with a history of violent earthquakes was always dangerous. The people of Japan were led to believe that even if a catastrophic earthquake occured, the safeguards built into these plants would prevent any real damage.

Then came last Friday afternoon and the 8.9 earthquake centered about 175 miles northeast of Tokyo in the ocean close to the northern port city of Sendai. Fukushima is about 50 miles inland from Sendai. The Fukushima nuclear plant has three reactors, providing power to much of that part of Japan.

There have been two nuclear plant disasters since these began to be built: the first was the relatively mild Three Mile Island plant near Harrisburg, PA in 1979, where there was a partial reactor core meltdown and some release into the air of radioactive materials, of which only the tiniest fraction of which was of the dangerous iodine 131. The "containment building" was not damaged. This accident (and the resulting legislation and rigorous regulation) essentially halted the building of nuclear power plants in the US. The second was far worse-- Chernobyl (the biblical Wormwood) in the Ukraine, where the reactor core melted and the containment building was blown apart, compounded by a faulty Soviet response to a nuclear plant built with a faulty design to begin with. Nearly everything within a 30 square mile radius was evacuated. Tens of thousands perished because of the effects of this. A utter catastrophe. Only now, some thirty years later, is the area beginning to recover.

At Fukushima, as of about half an hour ago, The IAEA said that one of the reactor cores has melted down and exploded, blowing up the containment building. The third reactor core is overheating as well; they are simply throwing sea water on it to try and cool it down after an earlier attempt failed. They're removing hydrogen from inside the containment building, which so far remains intact. The second reactor appears to be doing much better, with the original cooling apparatus working well enough to keep things under control. The area has been evacuated in a 25 sq km radius, some 200,000 people. They might yet save the third reactor core, but the IAEA report sounds rather bad and I fear it's only a matter of time before it too blows up. This is another Chernobyl.

All of this is going to kneecap any hope of a recovery in Japan. To begin with, the owner of the Fukushima plant is the Tokyo Electric Power Company, or TEPCO, which was in some trouble before Fukushima, with $90 billion on the books debt and quite possibly more. They had been downgraded two months ago by S&P to AA- out of concern about their debt levels. Then we get to the part where most of Japan's carmakers have halted production. One report I read said that the innovative Nissan Leaf and the Toyota Prius are partially built in or near the city of Sendai, which suffered tremendously from the tsunami. Prime Minister Naoto Kan and the Bank of Japan have this morning announced the injection of about $87 billion into money markets to try and calm the currency markets. The Nikkei plunged 5% on the opening, triggering circuit breakers to slow down the trading. For a terrific view of the likely effects on the Japanese economy, here's Gonzalo Lira's take:

As I'm writing this, NHK (the main Japanese news service) has reported that there was an explosion at that number three reactor at Fukushima-- in addition, there is another tsunami expected there as well, in the 5 meter range as well. So far, details are lacking, but this can't be good.

Oh wow-- and now this: Saudi forces are preparing to enter Bahrain. This is bad. Tonite is a truly surreal one, and I have no idea where all of this will lead us to. But one thing is for sure.. the markets will be in turmoil tomorrow. My first hunch is that the interest rate on US Treasuries will go down (flight to safety), even with the near certainty that Japan may have to cash some of them in to repair the damage done by this catastrophe. Gold and silver will probably rocket northwards. Batten down the hatches-- looks like a storm is a comin. Lets hope it does'nt get out of control.

Sunday, March 6, 2011

King Abdullah's Intransigence

In the Muslim religion, there are two main factions: Sunni, which compromises about 3/4ths of all Muslims, and Shia, which for the most part comprimises the remaining 1/4th. The main Shiite power is Iran. There are large Shia populations in Saudi Arabia and next door in tiny Bahrain, though the majority (and the ruling families) are both Sunni. Iraq is also now a mainly Shiite country, who's political structure is also mainly Shia, including PM Maliki. Over the last few weeks, the Shia minority in Bahrain have begun a nasty revolt against the ruling family, demanding political and social changes, including a constitutional monarchy (like Britain's) where the real power passes from the monarchy to a democratic government. In Saudi Arabia, the Shia population is centered in the eastern part of the country, which also happens to be the main oil producing region, near the Persian Gulf.. and right across the Gulf from Iran. It's in this part of Saudi Arabia that a "Day of Rage" is being planned mainly by the Shia population there, who are demanding the same thing as their Bahraini cousins are demanding.. a constitutional monarchy. Intermingled amongst this mess is the US 5th Fleet, now stationed in Bahrain. Thus has the nightmare of the House of Saud arrived.

This last Friday, Saudi Arabia began shipping nearly 10,000 security personnel into this region in anticipation of the "Day of Rage" protests. Earlier in the week, there were reports of Saudi tanks heading into Bahrain, which ultimately proved to be false. This report sent the price of Brent Crude up nearly $10 in early trading before mellowing out later in the day. The opposition is expecting upwards of 20,000 people to march in Riyadh itself, despite the Saudi authorities banning all demonstrations, with bigger ones planned in the Shia areas of the east. The protestors are organized, and in facebook messages are encouraging their Sunni brethren to join them in demanding a constitutional monarchy and an end to the corruption which has enriched the Saudi royal family beyond imagination. Despite being the world's largest producer and exporter of oil and a phenomenally wealthy country as a whole, much of that wealth does not reach the lower classes; about a fifth of all Saudis are dirt poor. There are literally hundreds of thousands of engineers in Saudi Arabia who cannot find work, despite first class educations from Western universities. Unemployment, especially among the young population (which thanks to a very high birth rate is exploding in number) is quite high. In short, here we are yet again-- unemployment, poverty and disenfranchisement.

In an attempt to head off the coming unrest, Saudi King Abdullah unveiled a $34 billion social aid package, including unemployment benefits for the first time. While crude is at $100+ per barrel, he can afford it. But Abdullah may not be able to keep all of his promises. A week ago or so he promised to increase output to make up for the loss in Libyan production. Many important analysts believe that Saudi Arabia does not have the capacity to make such promises, and a Wikileaks document released some time ago stated that senior Saudi officials acknowledge that their total oil reserves and capacity have been vastly overstated. The production hike has not happened so far. Worse, the Saudis slapped a tax on all oil exports to Asia and Europe: "Top oil exporter Saudi Arabia has raised the price of its flagship Arab Light crude oil in April to customers in Asia, State oil giant Saudi Aramco said on SaturdayAramco set the price at Oman/Dubai plus $1.95 a barrel, up 65 cents from March. The price to the United States was reduced by 30 cents to parity with Argus Sour Crude Index and the price to northwest Europe was raised by 80 cents to BWAVE minus $3.40" Seems that our Saudi friends want to do their part in support of the 5th Fleet.

Part of this is very likely due to something I explained in earlier posts regarding grains-- hoarding. There have been some suggestions that Asian nations have begun doing just that. Yesterday Senator Rockefeller (D-WV) became the third senator to ask the Obama Administration to begin tapping the US Strategic Oil Reserve, which at about 724mm barrels of oil amounts to about sixty days worth of imports (12mm barrels per day). On today's "Meet the Press" White House Chief of Staff Bill Daley said that President Obama was indeed considering such a move. If the asian nations begin hoarding in a meaningful way, we could actually see $4.00/gal gasoline within a few weeks.  

In Saudi Arabia, the government is trying to dissuade young people from protesting, threatening long jail sentences and other measures. Saudi authorities also seem to be trying the same tired trick used by Mubarak, Saleh, Qaddafi and others on the boil that "foreign agents" are behind a lot of the protests; Saudi authorities have mentioned that large numbers of "Iranian and Iraqi" Shiites were participating in the Bahraini demonstrations-- and in the case of Iran, I would'nt doubt this. If the demonstrations are large ones and the crackdown is particularly harsh-- live fire and all-- this puts several nations in a serious position, beginning with us. Do we condemn the Saudi crackdown and send them down the river like we did with Mubarak-- or do we stand shoulder to shoulder with the Royal Family ? The US Government stood shoulder to shoulder with the Shah of Iran and paid a steep price for that one. How many times will the US be seen to help crush democracy protestors, with US ammo no less ? Iranian meddling will undoubtedly help unhinge the situation. There have been reports that King Abdullah has told the Bahraini authorities that if they do not put down the Shia revolt, he will send in troops who will. Should you see anything like this come to pass, be afraid-- very afraid. Iran will not lightly tolerate Saudi tanks mowing down Shia civilians who simply want the right to vote. Not that mowing down Shia civilians is a problem in Iran, mind you-- it's done regularly to protesters in Tehran. 

There is a chance that the protests in Saudi Arabia and Bahrain simply fizzle out-- lets hope so. It's really too bad that these Royal families refuse to allow a constitutional democracy or any sort of real representation by the people. Jordan and Morocco are both {now} moving in this direction, and wisely in my opinion. But Saudi King Abdullah does not seem to see the writing on the wall as did the Kings in Jordan and Morocco. Indeed he was reported to have suffered a minor stroke when on a conversation with President Obama a couple weeks ago; he was urging Obama to stand shoulder to shoulder with Mubarak. One stubborn old man's pride might bring down the House of Saud-- and with it quite possibly will go any hope of an economic recovery for us as gas soars past $6.00/gal.